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[casi] Impt new story on Iraq contracts

Halliburton's Deals Greater Than Thought

By Michael Dobbs
Washington Post Staff Writer
Thursday, August 28, 2003; Page A01

Halliburton, the company formerly headed by Vice President Cheney, has won
contracts worth more than $1.7 billion under Operation Iraqi Freedom and
stands to make hundreds of millions more dollars under a no-bid contract
awarded by the U.S. Army Corps of Engineers, according to newly available

The size and scope of the government contracts awarded to Halliburton in
connection with the war in Iraq are significantly greater than was
previously disclosed and demonstrate the U.S. military's increasing reliance
on for-profit corporations to run its logistical operations. Independent
experts estimate that as much as one-third of the monthly $3.9 billion cost
of keeping U.S. troops in Iraq is going to independent contractors.

Services performed by Halliburton, through its Brown and Root subsidiary,
include building and managing military bases, logistical support for the
1,200 intelligence officers hunting Iraqi weapons of mass destruction,
delivering mail and producing millions of hot meals. Often dressed in Army
fatigues with civilian patches on their shoulders, Halliburton employees and
contract personnel have become an integral part of Army life in Iraq.

Spreadsheets drawn up by the Army Joint Munitions Command show that about $1
billion had been allocated to Brown and Root Services through mid-August for
contracts associated with Operation Iraqi Freedom, the Pentagon's name for
the U.S.-led war and occupation. In addition, the company has earned about
$705 million for an initial round of oil field rehabilitation work for the
Army Corps of Engineers, a corps spokesman said.

Specific work orders assigned to the subsidiary under Operation Iraqi
Freedom include $142 million for base camp operations in Kuwait, $170
million for logistical support for the Iraqi reconstruction effort and $28
million for the construction of prisoner of war camps, the Army spreadsheet
shows. The company was also allocated $39 million for building and operating
U.S. base camps in Jordan, the existence of which the Pentagon has not
previously publicly acknowledged.

Over the past decade, Halliburton, a Houston-based company that made its
name servicing pipelines and oil wells, has positioned itself to take
advantage of an increasing trend by the federal government to contract out
many support operations overseas. It has emerged as the biggest single
government contractor in Iraq, followed by such companies as Bechtel, a
California-based engineering firm that has won hundreds of millions of
dollars in U.S. Agency for International Development reconstruction
contracts, and Virginia-based DynCorp, which is training the new Iraqi
police force.

The government said the practice has been spurred by cutbacks in the
military budget and a string of wars since the end of the Cold War that have
placed enormous demand on the armed forces.

But, according to Rep. Henry A. Waxman (D-Calif.) and other critics, the
Iraq war and occupation have provided a handful of companies with good
political connections, particularly Halliburton, with unprecedented
money-making opportunities. "The amount of money [earned by Halliburton] is
quite staggering, far more than we were originally led to believe," Waxman
said. "This is clearly a trend under this administration, and it concerns me
because often the privatization of government services ends up costing the
taxpayers more money rather than less."

Wendy Hall, a Halliburton spokeswoman, declined to discuss the details of
the company's operations in Iraq, or confirm or deny estimates of the
amounts the company has earned from its contracting work on behalf of the
military. In an e-mail message, however, she said that suggestions of war
profiteering were "an affront to all hard-working, honorable Halliburton

Hall added that military contracts were awarded "not by politicians but by
government civil servants, under strict guidelines."

Daniel Carlson, a spokesman for the Army's Joint Munitions Command, said
Brown and Root had won a competitive bidding process in 2001 to provide a
wide range of "contingency" services to the military in the event of the
deployment of U.S. troops overseas. He said the contract, known as the
Logistics Civil Augmentation Program, or LOGCAP, was designed to free
uniformed personnel for combat duties and did not preclude deals with other

Carlson said the money earmarked for Brown and Root was an estimate, and
could go "up or down" depending on the work performed.

The Joint Munitions Command provided The Washington Post with an updated
version of a spreadsheet the Army released to Waxman earlier this month,
giving detailed estimates of money obligated to Brown and Root under
Operation Iraqi Freedom. Estimates of the company's revenue from Iraq have
been increasing steadily since February, when the Corps of Engineers
announced the company had won a $37.5 million contract for pre-positioning
fire equipment in the region.

In addition to its Iraq contracts, Brown and Root has also earned $183
million from Operation Enduring Freedom, the military name for the war on
terrorism and combat operations in Afghanistan, according to the Army's

Waxman's interest in Halliburton was ignited by a routine Corps of Engineers
announcement in March reporting that the company had been awarded a no-bid
contract, with a $7 billion limit, for putting out fires at Iraqi oil wells.
Corps spokesmen justified the lack of competition on the grounds that the
operation was part of a classified war plan and the Army did not have time
to secure competitive bids for the work.

The corps said the oil rehabilitation deal was an offshoot of the LOGCAP
contract, a one-year agreement renewable for 10 years. Individual work
orders assigned under LOGCAP do not have to be competitively bid. But Waxman
and other critics maintain that the oil work has nothing to do with the
logistics operation.

The practice of delegating a vast array of logistics operations to a single
contractor dates to the aftermath of the 1991 Persian Gulf War and a study
commissioned by Cheney, then defense secretary, on military outsourcing. The
Pentagon chose Brown and Root to carry out the study and subsequently
selected the company to implement its own plan. Cheney served as chief
executive of Brown and Root's parent company, Halliburton, from 1995 to
2000, when he resigned to run for the vice presidency.

At the time, said P.W. Singer, a Brookings Institution scholar and author of
"Corporate Warriors," it was impossible to predict how lucrative the
military contracting business would become. He estimates the number of
contract workers in Iraq at 20,000, or about one for every 10 soldiers.
During the Gulf War, the proportion was about one in 100.

Brown and Root's revenue from Operation Iraqi Freedom is already rivaling
its earnings from its contracts in the Balkans, and is a major factor in
increasing the value of Halliburton shares by 50 percent over the past year,
according to industry analysts. The company reported a net profit of $26
million in the second quarter of this year, in contrast to a $498 million
loss in the same period last year.

Waxman aides said they have been told by the General Accounting Office that
Brown and Root is likely to earn "several hundred million more dollars" from
the no-bid Corps of Engineers contract to rehabilitate Iraqi oil fields.
Waxman, the ranking minority member on the House Government Reform
Committee, had asked the GAO to investigate the corps' decision not to bid
out the contract.

After a round of unfavorable publicity, the corps explained that the sole
award to Brown and Root would be replaced by a competitively bid contract.
But the deadline for announcing the results of the competition has slipped
from August to October, causing rival companies to complain that little work
will be left for anybody else. Bechtel, one of Halliburton's main
competitors, announced this month that it would not bid for the corps
contract and would instead focus on securing work from the Iraqi oil

In addition to the Army contracts, Halliburton has profited from other
government-related work in Iraq and the war on terrorism, and has a $300
million contract with the Navy structured along similar lines to LOGCAP.

Pentagon officials said the increasing reliance on contractors is
inevitable, given the multiple demands on the military, particularly since
Sept. 11, 2001. Defense Secretary Donald H. Rumsfeld is a champion of
"outsourcing," writing in The Post in May that "more than 300,000 uniformed
personnel" were doing jobs that civilians could do.

Independent experts said the trend toward outsourcing logistic operations
has resulted in new problems, such as a lack of accountability and
transparency on the part of private military firms and sometimes
questionable billing practices.

A major problem in Iraq, Singer said, has been the phenomenon of "no-shows"
caused by the inhospitable security environment, including the killing of
contract workers, including a Halliburton mail delivery employee earlier
this month.

"At the end of the day, neither these companies nor their employees are
bound by military justice, and it is up to them whether to show up or not,"
Singer said. "The result is that there have been delays in setting up
showers for soldiers, getting them cooked meals and so on."

A related concern is the rising cost of hiring contract workers because of
skyrocketing insurance premiums. Singer estimates that premiums have
increased by 300 percent to 400 percent this year, costs that are passed on
to the taxpayer under the cost-plus-award fee system that is the basis for
most contracts.

The LOGCAP contract awarded to Brown and Root in 2001 was the third, and
potentially most lucrative, super-contract awarded by the Army. Brown and
Root won the first five-year contract in 1992, but lost the second to rival
DynCorp in 1997 after the GAO criticized the Army for not adequately
controlling contracting costs in Bosnia.

C 2003 The Washington Post Company


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